Consumer spending will dip and price inflation will rise in the immediate aftermath of the introduction of value added taxation (VAT) in Bahrain, according to the head of consultancy EY’s VAT advisory services.
Speaking to Bahrain-based Gulf Daily News, EY’s top regional VAT consultant David Stevens said the period before and after the implementation in 2019 would mimic how VAT affected economies in the UAE and Saudi Arabia.
Decline in spending post implementation will come about as a result of increases in prices, according to Stevens.
“From what we have observed in Saudi Arabia and the UAE, there is likely to be a pull forward of some discretionary spending ahead of the VAT commencement date that will then see a decline in such spending after the tax is introduced,” he said.
Saudi Arabia and the UAE were the first two countries to introduce VAT among Gulf countries on January 1, 2018 at a rate of 5%.
The tax, levied on goods and services at each point of sale, was also to be introduced in Oman, Bahrain and Kuwait.
However, Bahrain and Oman opted to delay introduction to 2019, while Kuwait is reportedly mulling implementation in 2021.
Bahrain will introduce VAT at the same rate, which will allow any impact on the economy to be “modest and short-term in nature,” said Stevens.
Sectors that VAT will be levied on are yet to be confirmed, he added, however it’s grow Bahrain’s revenues by up to 2% of the country’s GDP.